A new era of currency volatility has taken hold following years of subdued interest rates and limited exchange rate movement. In the US, Federal Reserve rate cuts — combined with sweeping macroeconomic and political uncertainty — pushed the dollar down by roughly 10% against other major currencies, making 2025 the greenback’s worst year since 2017.
Ortec Finance, a provider of technology and solutions for risk and return management, recently delved into currency volatility.
For globally diversified portfolios, the impact has been considerable, Ortec said. Each currency and country pairing now demands careful individual assessment, from equities and interest rate forecasts on fixed income instruments, through to the currency management layer that runs across both asset classes.
In response, asset owners have increasingly moved to centralise their currency management operations. This approach allows them to account for a range of interconnected factors: the correlation between currency movements and equity returns; decisions around fund versus manager discretion on hedge ratios; the aggregation of offsetting positions to reduce trading costs; and the ability to respond in real time to market developments through overlay programmes.
This shift also fits neatly within the growing adoption of a Total Portfolio Approach (TPA), which consolidates multiple factors and overlays into a single centralised function — removing the need to delegate across several managers.
However, centralising currency management is not without its complexities, and many asset owners are finding performance attribution harder than anticipated. A core challenge is simply gathering and aligning all the necessary data. Funds must monitor the gap between achieved trade rates and benchmark close rates, assess whether they are receiving value for money on FX execution, and account for the fact that currency markets do not close simultaneously — meaning any snapshot carries inherent imperfections.
Further complications arise from intra-month framework changes and implementation delays, which can introduce unintended risk. Equally, where multiple managers hold contradictory views on similar currency pairs, the result can be unnecessary and costly offsetting trades.
Ortec’s investment management platform PEARL has developed a currency overlay capability designed to address each of these pain points.
Through a single user interface, the system allows users to visualise all layers of a fund’s currency overlay in one consolidated report, while also cross-referencing underlying portfolios. All trade, position, and portfolio data is loaded into a single source, enabling users to track changes over time and compare across different hedge policies and base currencies — combining overlay reporting with investment decision reporting in one place.
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